Mr. Paul Blount:

I will not speak to specific figures. Looking at the markets today and where it is working and not working, in the energy market there are issues with scheduling and dispatch of storage that EirGrid is currently working on. We think there are solutions coming to that. There is an interim solution, which should be there in the next year or 18 months, and then there is a more enduring solution required that will allow storage to be dispatched efficiently to solve things like network congestion. That is a little further down the line. The effect of that is that the market design today would not allow surplus energy to be captured at close to zero cost, which is what it should be, and give it back to the system at another time. The first point, therefore, is that basic work is ongoing and there are good people working on delivering those systems to try to get the energy market functioning a little better for storage.

Looking beyond that, network charging is a huge issue and one we mentioned earlier. To give the committee some figures, we looked at a 10 MW commercial demonstration site for the long duration storage technology. For a 10 MW 100-hour battery, which a huge amount of energy is put through, storage currently pays the demand use-of-system charge which has a usage component. It effectively acts as a double charge for consumers. A good analogy I heard recently was VAT. For example, where someone pays a construction contractor to come in and build a house, under today's storage, that person would pay VAT for the materials and then pay VAT again for the construction work. Wee have recognised that we do not want to tax twice, so the contractor today can claim the VAT back on the materials and the VAT is only paid for the end product.

Effectively, what storage is doing for the system is that if there is a generation use-of-system charge to pay for the network, and if a demand customer is paying a demand use-of-system charge for the network, at certain times the network will not be able to carry the power from one point to the other, so storage can come in, absorb that energy and move it to a point in time where the network can carry it. That makes better use of the network and provides more utility to both the users, and while we are paying a charge for using the network, we are solving a network problem and should receive a fee for that. That is just one of the bigger examples of existing charging structures that are creating these big investment gaps.

Some of those issues can be fixed, but if we fix the scheduling of dispatch and amend network charging, the last issue we will have is that we will be moving from a system where the majority of the cost is fuel. There is a marginal cost of generation and the short-term optimisation of that to minimise fuel cost is an important part of the market. We are now moving to a market that is really capital intensive, and if we want to deliver that cost-effectively, we will need to reduce the cost of capital, and the way to do that is by giving revenue certainty to investors. Without being specific on figures, in the case of a project that has revenue certainty and might be perfectly happy with €10 million a year, if we create huge uncertainty, it might want to see a model that says it will often get €12 million, €13 million or €14 million a year but there could be years when it gets €6 million. A project needs to see much greater revenue potential than it really needs to pay it for the risk.

To illustrate how volatile this can be, I read recently that two-hour storage projects that have been just about able to cobble together business cases in Great Britain have seen variation in year-on-year revenues of multiples of ten. During the peak of the Ukrainian crisis, there was huge volatility in pricing and a lot of storage projects made a lot of money during those periods, but as it has settled back, they are now feeling a lot of pain in not having the revenue they thought they did. When we are moving to a power system where 70% or 80% of the cost used to comprise burning fuel, we are now moving to a power system where 90% or 95% of the cost could be capital investment. We need to start developing the market systems that lower the cost of capital and get us to a more efficient system.

If members wish, I could speak briefly question on synchronous compensators as well. Being an engineer, I cannot resist.